From SCMP
Back to basics
Asia's wealthy, shaken by global financial market woes, are returning to private bankers for investment advice
Louis Beckerling
Updated on Jun 10, 2008
The shake-out of global financial markets in the wake of the United States subprime credit crisis has sent the region's mega-wealthy investors running for cover - and back into the fold of the investment advisers attached to the family offices of private banks in Asia.
For the ultra high-net-worth investors in the region who make use of family office services, the roller-coaster ride taken by markets as the credit crisis unfolded became more scary than the market meltdown that followed the collapse of regional currencies in 1997, say industry insiders.
As a result the region's super-wealthy are now paying belated attention to the advice of their private bankers and cutting back on high-risk investments - chief among them the often highly leveraged "share-accumulator" style structured products that proved popular during the equity bull run in the region and bet on big share price gains of a selected portfolio of stocks.
"The riskier equity products had become a massive focus for many ultra high-net-worth customers of private banks, and the emergence of a bear market in Asian equities has been a wake-up call to investors and the family offices that serve them to ensure greater diversification of their investment portfolios," says Nicolas Reille, managing director and head of sales and marketing Asia ex-Japan for Societe Generale.
Rather than borrowing heavily to boost returns, investors intent on preserving family wealth for successive generations are now also sitting on growing cash piles rather than investing, say bankers, and returning to the investment basic of diversifying their portfolios to limit the erosion of the family wealth.
David Cripps of HSBC's Family Wealth Advisory Group acknowledges this trend to risk aversion. "In 1997-98 we saw a big correction in growth stocks after a lot of companies got overpriced," he says. "Now people are genuinely concerned about such things as the long-term outlook for the US dollar, inflation, and talk of oil prices reaching US$200 per barrel."
Finding investments in this environment that offer secure short-term gains is now more challenging than ever, he says.
HSBC's Todd James, head of the Family Office Investment Advisory Group in Hong Kong covering structured products, says the outcome of the shake-out is that the super-rich are now becoming risk managers rather than aggressive investors.
Michael Troth, managing director and head of Global Wealth Structuring for Citi Global Wealth Management, Asia-Pacific, says with the focus of the region's wealthy families back on the preservation of that wealth, greater attention is being paid to managing risk in increasingly globalised investment portfolios and ensuring a smooth intergenerational transfer of that wealth. "For example, if I am a non-US person and wish to have a portfolio of US equities and if I were to hold those equities in my name and I passed away, I only have an exemption limit of US$60,000 after which I would start to pay US estate tax. The top rate is 45 per cent," he says.
"So for a lot of our clients we manage this by setting up a private investment company that would acquire the US equities, in which case there would be zero estate duty tax exposure for the individual." He adds that particular care is taken to ensure that such structures are compliant and not regarded as attempts to evade tax.
Citi's mega-wealth unit caters for the ultra high-net-worth families that typically have a net worth of more than US$250million, and with the increasing internationalisation of families and their investments, more attention is being paid to establishing the most tax-efficient but compliant investment structures and smooth succession planning, Mr Troth says.
Lionel Kwok, head of investment solutions, North Asia, for Credit Suisse, also notes the increasing attention being paid by the region's wealthy families to the preservation of their wealth.
"In the past few months most investors, especially North Asian who tend to be a lot more directional-trading oriented, have changed their risk appetite and are now less aggressive in taking on leveraged risk," Mr Kwok says.
While markets performed strongly last year, investors put a lot of energy and money into structured equity derivatives, Mr Kwok says, but portfolios are now less geared and more diversified. "Larger clients are now tending to look at a better allocation process and adhering to a better portfolio advisory process suggested by their bankers and a better allocation of risk."
Capital-protected structured investment products as opposed to riskier equity-linked products are now returning to favour, he says.
"We encourage our clients to look at core holdings for medium-term investment. In the short-term the present market volatility will prevail and it will be very difficult to outsmart the market in three to six months.
"So we propose a proper portfolio advisory process that will maintain a certain percentage of a portfolio in a well-diversified core holding, with some `satellite' structured products or hedge fund holdings that may be more related to market direction," he says.
Before the subprime crisis and the collapse of several big financial institutions that followed, Asia's wealthy families paid little attention to counter-party risk when making investment decisions to preserve that wealth, he says.
"One thing we want to highlight is that we have a risk dimension in the market that we have not seen before. We now have the fear factor and liquidity risk, but most important is the realisation that there is counter-party risk as well. A lot of investors had not looked at this before, but they are now looking at who the issuer of the securities is before they invest. And, given recent developments in financial markets, they want to see higher returns if the credit is perceived to be a higher risk, which means yield is becoming more important," Mr Kwok says.
Samantha Bradley, managing director of the newly opened Hong Kong office of Withers Bergman, a unit of global law firm Withers Worldwide, says wealthy families in Asia are paying increasing attention to issues of wealth transfer and turning to Family Offices for advice.
"Our research shows that there is a lot of thought being given by wealthy families in the region to issues of succession, and another topical issue is the increasing internationalisation of investment," Ms Bradley says.
"This is particularly so with the emerging class of wealthy families in China who are looking further afield to make strategic investments across world markets," she says.
Asia's wealthy families have also become more selective about their philanthropic grants and bequests. Whereas family philanthropy used to take the form of a simple gift to charity, or possibly the establishment of a grant-making foundation, donors are now taking a more hands on approach to target their gift-giving.
Commenting on this trend, Withers Bergman says that philanthropists now expect to enhance the value of their charitable investments through maximum tax-efficiency to ensure that the most money is available for the work they wish to support at the least cost. And through using that money to meet their goals in the most efficient manner.
Showing posts with label private banking. Show all posts
Showing posts with label private banking. Show all posts
Wednesday, August 20, 2008
More info on HNWIs in Asia
From Private Banker International
Despite ploughing many millions of dollars into building up their wealth management operations in Asia, the leading global private banks still have a poor record when it comes to regional client asset-gathering on a major scale.
Between them, the top ten banks manage only 6 percent of the high net worth personal financial assets in Asia, which are estimated by the Merrill Lynch/Capgemini World Wealth Report to total $7.6 trillion. New data, based in part on UBS estimates, shows that the leaders between them had about $470 billion of assets under management (AuM) in Asia as of the end of 2006 (see table).
Top-ranked is UBS itself, with $93.3 billion or only around 1 percent. UBS’s total client assets in Asia puts it just ahead of next-ranked Citigroup, with $81.6 billion.
UBS claims a market share for the total global private banking market of about 3.5 percent, showing that it and its competitors still have much to do to attract Asian high net worth business.
The UBS data is contained in an investor presentation given by Kathryn Shih, the head of UBS Wealth Management Asia-Pacific, and Johan Riddergard, head of business development for UBS Wealth Management Asia. The ranking excludes ABN AMRO and Société Générale, but PBI has added in the totals for these two institutions.
ABN AMRO’s private banking AuM in Asia was $10 billion at the end of 2005, $15 billion by the end of last year and had ballooned to $17 billion by this May. Société Générale Private Banking also reports a year-end figure of $17 billion.
Talking about the issues of client penetration, the two UBS executives admit: “Our market share in Asia-Pacific is 1 percent and we are the biggest player – [leaving] large room for additional growth.”
As part of its costly build-up in the region, UBS had amassed 750 advisers across Asia by the end of last year, representing a compound annual growth rate of 30 percent since 2000. Over the same period, its AuM posted a compound growth of 19 percent.
The next stage of UBS’s push into Asia will be to shift increasingly into onshore wealth management, rather as it has done in Europe as traditional Swiss-style offshore banking has declined in relative importance amid fierce regulatory controls and a demand by clients for better performance.
So far, private banking in Asia-Pacific has focused on regional international wealth, but the two UBS executives contend that “the real opportunity is in domestic wealth accumulation”.
“About 90 percent of the wealth in Asia-Pacific is domestic and we have just started to capture it,” they add.
Onshore growth
Onshore wealth will grow as wealth becomes more concentrated among high net worth houses, while there is an increased need for professional advice as clients become more sophisticated and first-generation wealth passes on to the next generation, they say.
UBS’s own estimate is that total Asia-Pacific wealth management assets are worth $12.5 trillion among households with more than $210,000 of investable liquid assets, a figure higher than that of the World Wealth Report, which sets a client wealth cut-off point of $1 million and above.
These assets across Asia, excluding Japan, are projected by UBS to grow by 9.7 percent between 2007 and 2010 – versus comparable growth globally of less than 6 percent. By the end of the decade, global wealth assets as a whole are forecast to hit $55 trillion.
Despite ploughing many millions of dollars into building up their wealth management operations in Asia, the leading global private banks still have a poor record when it comes to regional client asset-gathering on a major scale.
Between them, the top ten banks manage only 6 percent of the high net worth personal financial assets in Asia, which are estimated by the Merrill Lynch/Capgemini World Wealth Report to total $7.6 trillion. New data, based in part on UBS estimates, shows that the leaders between them had about $470 billion of assets under management (AuM) in Asia as of the end of 2006 (see table).
Top-ranked is UBS itself, with $93.3 billion or only around 1 percent. UBS’s total client assets in Asia puts it just ahead of next-ranked Citigroup, with $81.6 billion.
UBS claims a market share for the total global private banking market of about 3.5 percent, showing that it and its competitors still have much to do to attract Asian high net worth business.
The UBS data is contained in an investor presentation given by Kathryn Shih, the head of UBS Wealth Management Asia-Pacific, and Johan Riddergard, head of business development for UBS Wealth Management Asia. The ranking excludes ABN AMRO and Société Générale, but PBI has added in the totals for these two institutions.
ABN AMRO’s private banking AuM in Asia was $10 billion at the end of 2005, $15 billion by the end of last year and had ballooned to $17 billion by this May. Société Générale Private Banking also reports a year-end figure of $17 billion.
Talking about the issues of client penetration, the two UBS executives admit: “Our market share in Asia-Pacific is 1 percent and we are the biggest player – [leaving] large room for additional growth.”
As part of its costly build-up in the region, UBS had amassed 750 advisers across Asia by the end of last year, representing a compound annual growth rate of 30 percent since 2000. Over the same period, its AuM posted a compound growth of 19 percent.
The next stage of UBS’s push into Asia will be to shift increasingly into onshore wealth management, rather as it has done in Europe as traditional Swiss-style offshore banking has declined in relative importance amid fierce regulatory controls and a demand by clients for better performance.
So far, private banking in Asia-Pacific has focused on regional international wealth, but the two UBS executives contend that “the real opportunity is in domestic wealth accumulation”.
“About 90 percent of the wealth in Asia-Pacific is domestic and we have just started to capture it,” they add.
Onshore growth
Onshore wealth will grow as wealth becomes more concentrated among high net worth houses, while there is an increased need for professional advice as clients become more sophisticated and first-generation wealth passes on to the next generation, they say.
UBS’s own estimate is that total Asia-Pacific wealth management assets are worth $12.5 trillion among households with more than $210,000 of investable liquid assets, a figure higher than that of the World Wealth Report, which sets a client wealth cut-off point of $1 million and above.
These assets across Asia, excluding Japan, are projected by UBS to grow by 9.7 percent between 2007 and 2010 – versus comparable growth globally of less than 6 percent. By the end of the decade, global wealth assets as a whole are forecast to hit $55 trillion.
Ultra Wealthy in Hong Kong
Ultra high net worth individuals: Mega-rich prefer to be members of an exclusive club
By Florian Gimbel
Published: December 8 2006 12:25 | Last updated: December 8 2006 12:25
Asian private banking tends to be highly profitable because clients are willing to believe they are members of an exclusive club.
Yet some want to be more equal than others – a trend that has not been lost on banks that service the ultra-wealthy.
Industry giants such as UBS, HSBC and Citigroup have been seeking to woo high-end private banking clients – ranging from entrepreneurs with $100m of assets to billionaire tycoons – by establishing dedicated teams of specialist bankers.
These clients may be a boon for the corporate finance departments of big groups because of the investment needs of their family companies. But as private banking clients, they can be a mixed blessing because of their bargaining power.
Typically, Asia’s super-rich set up companies, known as family offices, run by investment specialists who act as advisers and gatekeepers. They oversee the family’s multiple private banking relationships, which often include a mix of US and European banks as well as US brokers for aggressive trading strategies.
But unlike their counterparts in the US and Europe, ultra-wealthy Asians have balked at the idea of joining multiple family offices designed to help rich families share the cost of sophisticated investment management and back-office administration.
This reflects the fact that Asia’s mega-wealth is still in the hands of the “first generation”, the larger-than-life entrepreneurs who are fiercely competitive and deeply suspicious of their fellow tycoons.
“A family office is so personal it is hard to share it with others,” says Kathryn Shih, head of the Asian operation of UBS Wealth Management. “These businesses are run in the style of the owners and even that changes periodically.”
Fleming Family & Partners, the company launched by the UK banking dynasty, is seeking to change these perceptions. The firm, which has recently launched a Hong Kong office, is hoping to carve out a profitable niche by focusing on what it sees as truly independent advice.
“The size of many banking institutions means that, however hard they may try, they face conflicts of interest between their private banking arm and their product manufacturing business,” says Lucy Sutro, head of Fleming Family’s Hong Kong operation. “Most clients in this region have multiple private banking relationships. We will help clients assess what performance they get from their banks.”
HSBC, one of Asia’s biggest private banks, has implicitly recognised the need for greater transparency by launching a separately incorporated family office service firm. David Cripps, who leads the one-year-old venture, insists there is no sharing of client information with HSBC private bankers.
“By providing strategic asset allocation advice, we can correct imbalances and overlaps in a client’s overall portfolio,” says Mr Cripps. “We are here to provide a value-added service, but we are not set up as a profit centre within the group.”
Companies such as Citigroup, which counts a large number of Asia’s wealthiest tycoons and families among its clients, are unimpressed by the new kids on the block.
“In highly developed markets such as Hong Kong, people care about value for money,” says Kaven Leung, head of the north Asia operation of Citigroup Private Bank. “So long as the selection of the products and services is objective and valuable to clients, there will be demand regardless of whether the provider is a family office or mega-wealth team at a bank.”
A powerful weapon in the hands of the big banks, however, is their ability to offer ultra-wealthy families a chance to co-invest with the bank in sought-after private equity deals.
“Because we are taking the same risk as the clients, they know we will be objective in evaluating the opportunity,” says Mr Leung. “Above all, by co-investing with us, clients are benefiting from our due diligence and risk management expertise.”
Still, while groups such as UBS and Citigroup are happy to share some of the risk with their best clients, others believe big banks no longer have exclusive access to the best private equity deals. “Being big is not necessarily an advantage when it comes to some of the most attractive investment opportunities such as private equity, where you can invest only a limited amount,” says Philippe Damas, global head of the private banking at ING. “Moreover, big banks are no longer the first point of call for private equity deals, because everybody is chasing the best deals.”
Another potential problem for Asia’s largest private banks is the growing perception that they may be spreading themselves too thinly. Ultra-wealthy families may start to worry about banks that move too far into the affluent mass market to sustain high profit growth rates.
“I recently met two big Hong Kong clients who said: ‘please stay focused on your segment’,” says Jes Staley, global head of private banking at JP Morgan, which caters to extremely wealthy entrepreneurs and families.
Indeed, whatever they may do to woo Asia’s super-rich, banks will have to make sure they remain the kind of club that clients would actually want to join.
Copyright The Financial Times Limited 2008
By Florian Gimbel
Published: December 8 2006 12:25 | Last updated: December 8 2006 12:25
Asian private banking tends to be highly profitable because clients are willing to believe they are members of an exclusive club.
Yet some want to be more equal than others – a trend that has not been lost on banks that service the ultra-wealthy.
Industry giants such as UBS, HSBC and Citigroup have been seeking to woo high-end private banking clients – ranging from entrepreneurs with $100m of assets to billionaire tycoons – by establishing dedicated teams of specialist bankers.
These clients may be a boon for the corporate finance departments of big groups because of the investment needs of their family companies. But as private banking clients, they can be a mixed blessing because of their bargaining power.
Typically, Asia’s super-rich set up companies, known as family offices, run by investment specialists who act as advisers and gatekeepers. They oversee the family’s multiple private banking relationships, which often include a mix of US and European banks as well as US brokers for aggressive trading strategies.
But unlike their counterparts in the US and Europe, ultra-wealthy Asians have balked at the idea of joining multiple family offices designed to help rich families share the cost of sophisticated investment management and back-office administration.
This reflects the fact that Asia’s mega-wealth is still in the hands of the “first generation”, the larger-than-life entrepreneurs who are fiercely competitive and deeply suspicious of their fellow tycoons.
“A family office is so personal it is hard to share it with others,” says Kathryn Shih, head of the Asian operation of UBS Wealth Management. “These businesses are run in the style of the owners and even that changes periodically.”
Fleming Family & Partners, the company launched by the UK banking dynasty, is seeking to change these perceptions. The firm, which has recently launched a Hong Kong office, is hoping to carve out a profitable niche by focusing on what it sees as truly independent advice.
“The size of many banking institutions means that, however hard they may try, they face conflicts of interest between their private banking arm and their product manufacturing business,” says Lucy Sutro, head of Fleming Family’s Hong Kong operation. “Most clients in this region have multiple private banking relationships. We will help clients assess what performance they get from their banks.”
HSBC, one of Asia’s biggest private banks, has implicitly recognised the need for greater transparency by launching a separately incorporated family office service firm. David Cripps, who leads the one-year-old venture, insists there is no sharing of client information with HSBC private bankers.
“By providing strategic asset allocation advice, we can correct imbalances and overlaps in a client’s overall portfolio,” says Mr Cripps. “We are here to provide a value-added service, but we are not set up as a profit centre within the group.”
Companies such as Citigroup, which counts a large number of Asia’s wealthiest tycoons and families among its clients, are unimpressed by the new kids on the block.
“In highly developed markets such as Hong Kong, people care about value for money,” says Kaven Leung, head of the north Asia operation of Citigroup Private Bank. “So long as the selection of the products and services is objective and valuable to clients, there will be demand regardless of whether the provider is a family office or mega-wealth team at a bank.”
A powerful weapon in the hands of the big banks, however, is their ability to offer ultra-wealthy families a chance to co-invest with the bank in sought-after private equity deals.
“Because we are taking the same risk as the clients, they know we will be objective in evaluating the opportunity,” says Mr Leung. “Above all, by co-investing with us, clients are benefiting from our due diligence and risk management expertise.”
Still, while groups such as UBS and Citigroup are happy to share some of the risk with their best clients, others believe big banks no longer have exclusive access to the best private equity deals. “Being big is not necessarily an advantage when it comes to some of the most attractive investment opportunities such as private equity, where you can invest only a limited amount,” says Philippe Damas, global head of the private banking at ING. “Moreover, big banks are no longer the first point of call for private equity deals, because everybody is chasing the best deals.”
Another potential problem for Asia’s largest private banks is the growing perception that they may be spreading themselves too thinly. Ultra-wealthy families may start to worry about banks that move too far into the affluent mass market to sustain high profit growth rates.
“I recently met two big Hong Kong clients who said: ‘please stay focused on your segment’,” says Jes Staley, global head of private banking at JP Morgan, which caters to extremely wealthy entrepreneurs and families.
Indeed, whatever they may do to woo Asia’s super-rich, banks will have to make sure they remain the kind of club that clients would actually want to join.
Copyright The Financial Times Limited 2008
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